9.35 p.m.

Lord Ezra: My Lords, we are coming to the end of this impressive debate. We have had a wide range of views expressed about many aspects of the economy, exemplified, for example, by the speech just made by the noble Lord, Lord Cochrane of Cults, on tourism. We have also had very thoughtful contributions from two maiden speakers and a number of other noble Lords. I should like to add to that list the speech recently delivered by my noble friend Lord Dahrendorf. I hope that the Government will derive a measure of benefit from all that has been said. I hope that it will not simply lie in Hansard but will be carefully dissected and circulated among Ministers so that many of the ideas proposed today can eventually be incorporated in government policy.

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We are in a recovery situation following on a serious downturn. Of the many themes that were developed today, perhaps the main theme was: is this just another cyclical improvement to be followed in due course by a further sharp recession? I believe that many of the comments were addressed to that fundamental issue. I became a little perturbed when, in his introductory speech, the noble Earl, Lord Ferrers, told us that our economy was moving ahead faster than any other European country. I recall the noble Lord, Lord Young of Graffham, saying that, in almost the same words, in the late 1980s. But, within a year or so, the economy had overheated, corrective action was taken and we were in recession. Let us hope that that will not happen this time. I do not believe that we ought to take any chances in that respect.

Obviously we cannot avoid being involved in trade cycles. They affect all countries as we become much more global. What I think was most interesting and constructive today was the number of noble Lords who talked in their speeches about ways in which the cycles can be flattened. The fact is that the recession from which we have recently emerged was probably the sharpest that we have had since the war. Therefore, it is eminently desirable that, the next time we become involved in a global downturn--and, as I said, we cannot avoid being involved to some degree--we do not suffer to the same extent.

Much has been made of the Government's action on inflation. There is not the slightest doubt that that has so far proved to be successful. I, for one, am very pleased, although I know that this view is not generally shared by some others, that that has been achieved by close co-operation with the Bank of England, which is now playing a major role in partnership with the Government in achieving that result.

However, the real test of containing inflation will come when inflation starts rising elsewhere, because for the moment, as was rightly pointed out, our European partners are all keeping inflation reasonably under control. In fact, the example of France was given, where they have now achieved an inflation rate of 1.6 per cent. So the test will come when this changes. Will we be able to hold our inflation at low levels when it is creeping up elsewhere? We have much to do to prepare for that possible eventuality.

Of course dealing with inflation is just one side of the coin. If we want to have non-inflationary growth, something else has to be done to stimulate the growth. We can have, for example, a very low inflationary situation and have no growth at all and suffer in consequence. Therefore, containing inflation cannot be an end in itself; it must be a means, in combination with other measures, to achieve the required objective.

Many have referred to investment. We have been given varied statistics to show that investment has been falling, or investment has been increasing, or investment has not been changing very much. What I think most people agree on is that the long-term trend of investment in this country has compared unfavourably with most of our major competitors. It compares very unfavourably indeed with the emerging Far Eastern countries, whose rate of investment over the past two decades has been

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nearly double ours, and their rates of growth correspondingly large. Therefore it seems clear that the stimulus of investment is something to which we must attach as much importance as we do to the containment of inflation.

An illustration of the problems we have as a result of lack of sufficient investment in the past is that there is evidence that a number of firms in certain sectors are reaching capacity limits. Again there is much argument about this. However, the result of past cuts in capacity and present increases in demand have nonetheless created certain difficult areas. A survey carried out by Trade Indemnity, the credit management group, which was reported in the Financial Times on 22nd November--so it is very recent--showed that 42 per cent. of the firms in the sample taken in the third quarter were operating near optimum capacity and 7 per cent. said they were already overstretched.

We are, I believe, at a fairly early stage of recovery. These recovery cycles last, fortunately, a number of years. If we are already touching capacity in certain sectors and in the number of firms that I have indicated--if the sample is a valid one--this is a matter for grave concern. We are, as has rightly been pointed out, doing much better on our trade balance. That is excellent but, if we start running out of capacity and if we cannot produce the goods that the increased demand requires, that positive situation will soon turn the other way.

Of course, as we know, the lack of investment is not only in the industrial sector but is also in the built infrastructure in the public sector. I should like to give two examples of ways in which I think that investment in the infrastructure in the public sector has not been handled as effectively as it should have been. There could well be many other examples. I choose the example of the London Underground on which I have recently been corresponding with the noble Viscount, Lord Goschen. The London Underground some time ago put forward a plan relating to its core activity--not to any new lines--which requires some £700 million of investment per annum. The Government accepted that plan and in the expenditure estimates in 1991 said they would go ahead with it. The Underground generates about £150 million out of its own operations and therefore the plan required a grant of £550 million if it was to succeed. In the first year that was more or less achieved. Subsequently, I regret to say, there have been progressive cuts until at present the grant has been reduced to £350 million.

As a result the Underground system will continue to suffer from failures of track, signals and earthworks. Indeed, at the station which I use, which happens to be Sloane Square, there is a girder which has not been seen to for the past century or so which is in danger of collapse. If that happens, the whole of that line will be put out of action. Leaving such dire possibilities aside, there are frequent speed restrictions to avoid danger. With another £200 million, the situation could be put right. London Underground, which is doing a remarkably good job in my opinion, could do very much better and we could be served more effectively by that vital service.

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Another area to which I should like to draw attention is the Post Office. The Government have decided, because of differences of opinion within their own ranks, that they will not go ahead with privatisation, which was their preferred option. In the consultative document which they issued, they indicated that one other option was to relax the financial controls if the Post Office was to remain in the public sector. We ought to be told whether the Government will pursue that option or will leave the Post Office under its present constraints, which make it impossible for it to compete elsewhere.

One aspect of those constraints is the operation of the external financing limits. The Post Office recently made a profit of £280 million, but under the external financing limits it had to pay £220 million back to the Treasury. That is equivalent to a tax on profit of 80 per cent. The rest of us who run companies have to pay between 25 and 30 per cent. Why cannot the same rule apply to the Post Office?

Those are areas of investment in the public sector which raise questions as to whether the right judgments are being applied. As has repeatedly been said in the debate, it is not the quantity of investment that matters but its quality. Is the right quality of investment being applied within the public sector? We are justified in asking that question.

The private sector also needs to be stimulated. The two sectors have been brought together by the private finance initiative, an initiative which I applaud. It is a very desirable one. I believe that it is in line with Labour Party thinking, and certainly it is in line with the thinking on these Benches. However, we have to make sure that it works effectively. The noble Lord, Lord Eden, gave a good illustration of its operation.

I too have been involved in that area. I am concerned with a company which saves energy consumption, installing new boiler plant. We are at the smaller end of the investment programme, but I regret to say that we have found that it takes a very long time to negotiate deals. There is a vast amount of administrative procedure to be gone through. There is also the issue of risk sharing. It seems to us from one or two examples that we are being asked to take the bulk of the risk and we receive very little increased benefit as a result of doing so. Therefore, while it is desirable, the scheme needs to be looked at again. I was heartened by the fact that in a recent speech the Chancellor said that he was determined that it should be developed further.

I believe that there is also a need for direct incentives for investment in the private sector. Much has been made of the need to stimulate small firms. The CBI and the Engineering Employers' Federation have come out with a modest proposal, which has been put to the Chancellor and which I hope he will accept, that the first £200,000 of investment in plant and machinery should gain a 100 per cent. allowance against tax. Clearly, that would be mainly of interest to small firms.

The other form of investment which has been referred to repeatedly today is investment in people. We had the remarkable maiden speech of the noble Lord, Lord Gladwin of Clee, who has so much experience in that area. There is a real problem about our lack of

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investment in skills. In a recent initiative taken in the construction industry, Sir Clifford Chetwood, a leading member of that industry and formerly chairman of Wimpey's, said that in the UK there was virtually no formal qualification for at least half the workers in the construction industry. In Germany they all have qualifications. It is a major indictment of our lack of interest in providing sufficient instruction in skills. I am told by certain builders that they are already short of bricklayers even though the construction industry has not swept into major recovery. At great expense they are having to bus bricklayers from one site to another--and that is at a time when we have two and a half million people unemployed. That is a matter for serious reflection.

In conclusion, we have had a most important debate today at a crucial time. As my noble friend Lord Dahrendorf rightly said, the time to introduce major structural change in the economy is when the economy is beginning to go right. Making major structural changes when matters are in disarray and in difficulty is almost impossible. There would be enormous resistance.

This has been a timely debate. Many positive suggestions have been made. I very much hope that, in summing up, the noble Viscount the Lord Privy Seal will tell us that the Government can accept many of the propositions put forward.